What a difference a Day makes: the High Court on disqualifying pecuniary interests of parliamentarians

In Re Day [No 2] [2017] HCA 14, the High Court determined that Mr Bob Day had an indirect pecuniary interest in an agreement with the Commonwealth, and was thereby disqualified from being chosen or sitting as a senator pursuant to s 44(v) of the Constitution. The Court’s decision substantially revised the ambit of that section.

Re Day [No 2] [2017] HCA 14

The tribulations of (now former) Senator Bob Day are widely known. In Re Day [No 2] (Day), the High Court, sitting as the Court of Disputed Returns, considered whether Mr Day was disqualified from being chosen or sitting as a senator by operation of s 44(v) of the Constitution. At a time when the US Constitution’s prohibition on emoluments is under scrutiny, the decision offers insight into the operation of analogous provisions under Australian law.

Section 44(v) of the Australian Constitution provides that any person who:

(v) has any direct or indirect pecuniary interest in any agreement with the Public Service of the Commonwealth otherwise than as a member and in common with the other members of an incorporated company consisting of more than twenty-five persons;shall be incapable of being chosen or of sitting as a senator or a member of the House of Representatives.

The questions referred to the Court of Disputed Returns in this case relevantly included whether, by virtue of the operation of this section, a vacancy arose in Mr Day’s seat.

Mr Day and the Commonwealth Attorney-General sought to be heard on the referral. So too did Ms Anne McEwen, an ALP candidate who was the only candidate other than Mr Day not excluded upon the final count for the representation of South Australia in the Senate.

Mr Day’s putative contravention of s 44(v) was said to arise from his pecuniary interest in an agreement between the Commonwealth (as lessee) and Fullarton Investments Pty Ltd, the owner of Mr Day’s electorate office premises, for the lease of those premises.

Briefly: the Commonwealth provides members of Parliament with office accommodation in their electorate. It rented the premises from Fullarton Investments for that purpose. The premises had previously been owned by an entity Mr Day had controlled. Mr Day wished to avail himself of the Commonwealth rental allowance, but believed the Commonwealth would not rent the premises from him or an entity he owned. He instead arranged for the incorporation of Fullarton Investments (the sole director of which would be Mrs Debra Smith, the wife of Mr Day’s business partner), which purchased the premises. Fullarton Investments subsequently nominated a bank account held by Mr Day to receive rental payments from the Commonwealth. This arrangement also promised to reduce Mr Day’s contingent liability as guarantor for a loan, and offered the prospect of his receiving a distribution of the rental proceeds as the beneficiary of a discretionary trust.

Mr Day argued that these facts did not give rise to a ‘direct or indirect pecuniary interest’ under s 44(v). He relied in particular on In re Webster (1975) 132 CLR 270 (Webster), the High Court’s only previous decision concerning this section. In Webster, Barwick CJ, sitting as the Court of Disputed Returns, held that the purpose of s 44(v) was equivalent to that of the House of Commons (Disqualification) Act 1782 (the 1782 Act). The 1782 Act had sought to secure the independence of Parliament from the Crown, by prohibiting contracts, agreements or commissions between the Crown and parliamentarians by virtue of which ‘the Crown could conceivably influence’ the contracting parliamentarian in relation to parliamentary affairs.

Mr Day submitted, relying on Webster, that since there was no indication that the Commonwealth could have used the lease agreement to influence his parliamentary conduct, s 44(v) was not enlivened. He further submitted that the words ‘interest in any agreement’ referred to a concrete, legally enforceable interest in an agreement, not a mere hope or expectation arising from it. As well as drawing upon decisions made under what were said to be analogous provisions (principally Norton v Taylor (1905) 2 CLR 291, Ford v Andrews (1916) 21 CLR 317 and Hobler v Jones [1959] Qd R 609), Mr Day drew on hypothetical examples—such as a senator who relies on his wife’s income from public service employment to pay a mortgage—to illustrate that an expansive definition of s 44(v) would capture benign pecuniary interests, outside the intended ambit of the section.

It was submitted for the Attorney-General and Ms McEwen that s 44(v) had a broader purpose, namely, to prevent parliamentarians from exploiting their positions for financial gain, or finding their public duties and personal financial interests in conflict.

The Court (in four sets of reasons) accepted that view, agreeing that Webster was too narrow and should not be followed, and further determined that Mr Day had an indirect pecuniary interest in the lease between Fullarton Investments and the Commonwealth.

In effect, it was common to all four judgments that Barwick CJ in Webster had erred in holding that the 1782 Act was the ‘precise progenitor’ of s 44(v). For example, Kiefel CJ, Bell and Edelman JJ (in joint reasons) noted a shift in emphasis between the 1782 Act and s 44(v), from the fact of an agreement with the Crown to the parliamentarian’s pecuniary interest in that agreement; and consistent with that, the addition of an exception in s 44(v) for members of large companies (implying that members of small companies were not exempt).

In their Honours’ view, these differences signified that s 44(v) was intended to address a distinct concern, which had been amply ventilated in the Convention Debates on the clause that would become this section: a concern not just with the influence of the Crown or executive government over Parliament, but with the prospect of corruption among parliamentarians, and the need to isolate personal interests from public duties.

Given this rationale, pecuniary interests under the section cannot (contrary to Mr Day’s submission) be restricted to legally enforceable interests. The practical, as well as legal, effect of agreements must be considered in discerning pecuniary interests. Indeed, a majority of the Court (Kiefel CJ, Bell and Edelman JJ expressly, and Gageler J impliedly) suggested, in line with submissions of Ms McEwen, that the beneficiary of a discretionary trust which itself benefits from, or via a trustee is party to, an agreement with the Public Service of the Commonwealth might thereby have an indirect pecuniary interest.

Moreover, as Keane J emphasised, this case in particular bore marks of the very species of impropriety to which s 44(v)—on its proper construction—is directed. Mr Day was a cross-bench senator, who offered support to a government with a minority in the Senate. He had specifically asked the Government to rent the premises owned by Fullarton Investments for his use, rather than his occupying the premises vacated by his predecessor, Donald Farrell. Keane J thus described Mr Day’s reliance on the fact that the Government did not know about his interest in the lease as making ‘a virtue out of necessity’:

If the officers of the executive government with whom Mr Day dealt had known of his expectation of the receipt of rent from the Lease, then his discussions with those officers could have appeared as a case of a cross-bench Senator seeking private accommodation from an executive government which was in need of cross-bench support for its legislative program. That would have appeared as a glaring example of the kind of dealing between a parliamentarian and an officer of the executive government that s 44(v) was designed to prevent. Mr Day’s case that he had no pecuniary interest is not made more attractive because his self-interested dealing was masked by the trust structure he caused to be set up.

As Mr Day’s hypotheticals sought to highlight, one difficulty in embracing a more expansive reading of s 44(v) is to avoid impugning routine and innocuous agreements with the Commonwealth. The Court in Day endeavoured to resolve that difficulty, in divergent ways.

In separate judgments, Gageler J and Keane J drew a distinction between the ‘Public Service of the Commonwealth’, and the ‘Executive Government of the Commonwealth’ or the ‘Crown in right of the Commonwealth’. Evidently, their Honours viewed the former as a subset of the latter, comprising officers of the executive government within Commonwealth departments. Their Honours considered that the intended target of s 44(v) was agreements with the ‘Public Service’ so defined—for example, for the procurement of property or services—rather than agreements with the Commonwealth pursuant to laws of general application. Keane J, at least, stopped short of the concluded view that this reading obviated concerns about the unduly expansive operation of s 44(v), but suggested it ‘might be thought’ to do so.

Somewhat similarly, Kiefel CJ, Bell and Edelman JJ considered that ‘there can be no relevant interest if the agreement in question is one ordinarily made between government and citizen’; and suggested that the requirement of interest ‘in’ an agreement connotes ‘some personal connection to [an agreement], albeit indirect’, which was absent from Mr Day’s hypothetical examples.

In contrast, Nettle and Gordon JJ (in joint reasons) found the distinction between the ‘Public Service’ and the ‘Executive Government’ or ‘Crown in right of the Commonwealth’ to be ‘without practical or legal content’, and sought instead to confine the disqualifying effect of s 44(v) to pecuniary interests in an agreement by virtue of which the interested party ‘could conceivably be influenced in the exercise of their functions, powers and privileges, or in the performance of their duties, as a member of parliament’. In other words, they adapted the test (‘could conceivably influence’) in Webster, expanding it to include not just the executive’s influence upon parliamentarians but, independent of that, the influence of a pecuniary interest upon a parliamentarian’s own performance of his or her parliamentary functions and duties. In this case, they concluded that it was conceivable that Mr Day might be influenced by the existence of the agreement (for instance, in voting on any amendment to the scheme by virtue of which the Commonwealth rented his electorate office).

A subsequent question concerned the means and manner by which the vacancy left by Mr Day should be filled. In brief compass: Ms McEwen argued that Mr Day’s ineligibility to be chosen as a senator meant that the Family First group on the ballot paper was invalid, and the ‘above the line’ votes for Family First must be disregarded. She further submitted that ‘above the line’ votes may in effect have been votes for Mr Day, and that voters may not have intended that, if he were incapable of being elected, those votes should go to the next Family First nominee. Interestingly, Ms McEwen had sought to put on expert evidence that a proportion of votes for Family First were influenced by Day’s presence at the top of the ticket, but Gordon J refused that application as out of time: Re Day [2017] HCATrans 3. Ultimately, it was determined that the vacancy should be filled by a special count of the ballot papers, by analogy with the procedure followed where votes are received for a deceased candidate.